Accounting for Income Taxes: Uncertain Tax Positions—Selected Topics, written by Amy Dunbar, Ph.D., Associate Professor of Accounting, University of Connecticut, Rich Walton, J.D., LL.M., C.P.A. at Buchalter Nemer PC and Kathleen McEligot, C.P.A., at Deloitte Tax LLP, analyzes issues that arise due to FASB Interpretation No. 48, which addresses the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. 

This Portfolio discusses strategies—pre-filing and post-filing procedures—for resolving uncertain tax positions with the IRS expeditiously to avoid many of the detailed rules that require considerable judgment to apply.   It contains several best practices to help prepare for a financial statement audit of the income tax provision, specifically detailing the type of documentation that external auditors will need to evaluate a company's uncertain tax positions.

Accounting for Income Taxes: Uncertain Tax Positions—Selected Topics also analyzes legal developments concerning the IRS's ability to obtain tax accrual workpapers and discusses possible defenses companies may raise against an IRS request for them.  It explains the interest and penalty rules that apply to U.S. income tax deficiencies, and it discusses several best practices for designing effective internal controls over the FIN 48 compliance process. 

Accounting for Income Taxes: Uncertain Tax Positions—Selected Topics allows you to benefit from: 

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
• Invaluable practice documents including tables, charts and lists.
• Guidance from world-class experts.
• Real-world and in-depth analysis that lets you explore various options.
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios.

This Portfolio is included in the Accounting Policy & Practice Series, a comprehensive series of titles which explain, explicate, and offer commentary on a wide range of accounting and financial management topics, including revenue recognition, income taxes, leasing, business combinations, debt instruments, risk management, internal controls and more. 

Detailed Analysis

I. Introduction, Scope, and Purpose of Portfolio

A. Scope and Purpose of Portfolio

B. Companion Portfolio

II. Strategies for Resolving Uncertain Tax Positions Expeditiously

Introductory Material

A. IRS Pre-filing Procedures

1. Industry Issue Resolution (IIR)

2. Pre-filing Agreements (PFA)

3. Advance Pricing Agreements (APA)

4. Compliance Assurance Program (CAP)

B. Post-filing Procedures

1. Joint Audit Planning

2. Limited Issue Focused Examination (LIFE)

3. Fast-Track Settlement (FTS)

4. Accelerated Issue Resolution (AIR)

5. Early Referral to Appeals

III. Dealing With Taxing Authorities That Request FIN 48 Workpapers

Introductory Material

A. Nature of the Papers Sought: FIN 48 Workpapers Defined

1. Tax Reconciliation Workpapers Defined

2. Audit Workpapers Defined

3. Tax Accrual Workpapers Defined

B. Discoverability of Workpapers

1. Tax Reconciliation Workpapers

2. Audit Workpapers

3. Tax Accrual Workpapers

C. FIN 48 Workpapers: Nature and Discoverability

D. Potential Defenses to Production

1. Government's Failure to Comply With the Powell Factors

a. Summons Enforcement Procedures

b. Taxpayer's Defenses Under Powell

c. Textron Case: Facts

2. Attorney Client Communications

a. The Service's Position

b. Taxpayer's Response: Kovel?

3. I.R.C. § 7525

a. The Service's Position

b. The Taxpayer's Position

4. Work Product

a. What: Compiled Documents or Opinion Work Product?

b. Who: Was the Work Product Disclosed to a "Potential Adversary"?

c. Why: Will the Court Use a "But-For" or "Primary Motivating Purpose" Test?

d. Where: Were the Documents Prepared in the Ordinary Course of Business or Because of a Public Requirement?

e. How Much: Aggregate vs. Specific Reserves

5. Textron, Unresolved Issues, and Proactive Planning

a. Textron's Troubled Legacy

b. Unresolved Issues: The Big Picture

c. Other Jurisdictions

i. State-by-State

ii. Foreign Jurisdictions

d. Proactive Practice Planning Points

IV. Calculations of Interest and Penalties

Introductory Material

A. Interest on Underpayments/Overpayments of U.S. Income Tax

1. Period for Which Interest Is Due

a. Underpayments

b. Overpayments

2. Interest Rate

a. Corporate Underpayments

b. Large Corporate Underpayments-Hot Interest

c. Overpayments

d. Interest Rate Determination and Compounding

3. Suspension of Interest

a. 10/21 Day Window

b. Suspension of Interest Due to Delay of Demand for Payment

c. Suspension of Interest: Deposits to Suspend Interest on Potential Underpayments

4. Interest on Penalties

5. Deficiency Assessment With a Credit Elect

6. Global Interest Netting

7. Restricted Interest

a. Net Operating Loss (NOL) or Capital Loss (CL) Carryback

b. Foreign Tax Credit Carrybacks

c. Excessive Refunds From Carrybacks

B. Penalties on Underpayments of U.S. Income Tax

1. Accuracy Penalties-I.R.C. § 6662

a. Negligence/Disregard of Rules or Regulations-I.R.C. § 6662(c)

(1) Negligence

(2) Disregard of Rules or Regulations

b. Substantial Understatement-I.R.C. § 6662(d)

(1) General Rule

(2) Tax Shelter Rules

c. Substantial or Gross Valuation Misstatement-I.R.C. § § 6662(e) and (h)

2. Reportable Transaction Accuracy Penalty-I.R.C. § 6662A

a. Reportable Transaction Definition

b. Disclosed Transaction Accuracy Penalty

c. Undisclosed Transaction Accuracy Penalty

d. Statute Extension for Undisclosed Listed Transaction Returns

e. Ruling Requests

f. Protective Disclosure

3. Penalty for Failing to Include Reportable Transactions in the Return-I.R.C. § 6707A

4. SEC Reporting-I.R.C. § 6707A(e)

5. Fraud Penalty-I.R.C. § 6663

6. Coordination of Penalties

7. Avoiding a Penalty

a. Reasonable Cause Exception

(1) Taxpayer's Effort to Assess the Proper Tax Liability

(2) Reliance on Advice

b. Strengthened Reasonable Cause for § 6662A Penalty

c. File a Qualified Amended Return

d. File a "Clean" Original Return, Followed by an Amended Return

e. Disclose

V. Preparing for the Financial Statement Audit: Documentation Requirements

Introductory Material

A. General Documentation Requirements for the Auditor

1. SEC

2. PCAOB

3. AICPA

B. FIN 48 Documentation

1. SEC Perspective

2. Auditor Perspective

a. Identification of All Material Tax Positions

b. Unit of Account

c. Recognition and Measurement Process

(1) Scope

(2) Third Party Opinions

d. Classification

e. Disclosures

VI. Internal Control Considerations Under FIN 48

Introductory Material

A. FIN 48 Control Objectives: Identifying Tax Positions

B. FIN 48 Control Objectives: Applying the Recognition Rules

C. FIN 48 Control Objectives: Measuring Uncertain Tax Positions

D. FIN 48 Control Objectives: Subsequent Recognition and Derecognition

E. FIN 48 Control Objectives: Interest and Penalty Measurement

F. FIN 48 Control Objectives: Classification

G. FIN 48 Control Objectives: Disclosures

Working Papers

TABLE OF WORKSHEETS

Worksheet 1 Glossary

Worksheet 2 IRS Listed Abusive Tax Shelters and Transactions

Worksheet 3 The Use of Assertions in Obtaining Audit Evidence

Worksheet 4 Ernst & Young: Top 10 Leading Internal Control Practices

Worksheet 5 Ernst & Young: Top 10 Leading Internal Control Practices

Bibliography

OFFICIAL

Statutes

Federal

Internal Revenue Code

State

Public Laws

Regulations

Cases

American Institute of Public Accountants:

AICPA Code of Professional Conduct

AICPA Statements on Auditing Standards

Accounting Principles Board Opinions

Financial Accounting Standards Board:

FASB Statements of Financial Accounting Standards

FASB Interpretations

Public Company Accounting Oversight Board:

PCAOB Auditing Standards

PCAOB Releases

Securities and Exchange Commission:

SEC Releases

SEC 10-Qs

Internal Revenue Service:

Internal Revenue Rulings

Internal Revenue Procedures

IRS Delegation Orders

IRS Chief Counsel Memos

IRS Policy Statements

IRS Announcements

IRS Notices

IRS Information Releases

IRS Internal Revenue Manual

IRS Publications

UNOFFICIAL

BNA Portfolios

Publications

CPA and Law Firm Publications

Speeches